On August 9, 2018, the Ohio Supreme Court announced its decision on a certified question of state law regarding liability under the Ohio Securities Act, Ohio Rev. Code § 1707.43 (the “Act”). The question certified by the United States Court of Appeals for the Sixth Circuit was:

“Does 1707.43 impose joint and several liability on a person who, acting as the custodian of a self-directed IRA, purchased [illegal securities] on behalf and at the direction of the owner of the self-directed IRA…?”

In Boyd et al. v. Kingdom Trust Co. et al., 2018-Ohio 3156, the Ohio Supreme Court decided that the custodian was not liable under the Act for having purchased the securities, but rather could only be liable if the custodian colluded with the seller in the unlawful sale of securities or actively participated or aided in the sale of illegal securities.

Section 1707.43(A)
Section 1707.43(A) provides:

Subject to divisions (B) and (C) of this section, every sale or contract for sale made in violation of Chapter 1707. of the Revised Code, is voidable at the election of the purchaser. The person making such sale or contract for sale, and every person that has participated in or aided the seller in any way in making such sale or contract for sale, are jointly and severally liable to the purchaser...for the full amount paid by the purchaser..., unless the court determines that the violation did not materially affect the protection contemplated by the violated provision.

The Ohio Supreme Court’s Analysis
The Ohio Supreme Court’s analysis focused on the plain language of the Act, which made a distinction between those involved in the sale of illegal securities and those whose only involvement was the purchase of illegal securities. Persons not involved in any way in the sale of illegal securities would have no liability.

The Court noted that the legislature had separately defined “sale” and “purchase” as two distinct and separate acts. In addition, the Court noted that there were other sections of the Act where acts related to the sale or purchase were prohibited, such as the prohibition on misleading statements in the “purchase or sale of securities.” The Section at issue only prohibited conduct relating to the sale. The Court also rejected the argument that helping “in any way” included the sale, since the words immediately following that in the Statute are “in making such sale or contract for sale.”

Aside from its substantive result, this decision highlights the importance of reading and interpreting statutes in their entirety (similar to how contracts are construed).